Analyzing Stocks On Your Own: The Analysis Process

Experts tell us that investment success requires a disciplined approach for finding, researching, and analyzing potential investments. This chapter describes one such approach based on sound principles that are practiced by market-beating money managers. It’s certainly not the only way, and it may not be the best way. But it’s a place to start, and following it will make you a better investor. After you’ve mastered these strategies, you can modify them to suit your needs.

This chapter is from the book

This chapter is from the book

Experts tell us that investment success requires a disciplined approach for finding, researching, and analyzing potential investments. This chapter describes one such approach, and the ensuing chapters fill in the details. It’s based on sound principles that are practiced by market-beating money managers. It’s certainly not the only way, and it may not be the best way. But it’s a place to start, and following it will make you a better investor. After you’ve mastered these strategies, you can modify them to suit your needs.

The process involves finding investment candidates, weeding out the obvious misfits, researching and analyzing the survivors, picking the best candidates, and equally important, applying a clear-cut set of selling rules.

Finding Candidates

Finding stocks to analyze can be as easy as going to your hair salon, talking to your neighbors, picking up a magazine, surfing the Internet, or turning on the TV. You’ll find no shortage of tips, and you’ll welcome them once you’ve gained confidence in your analysis skills, because you’ll be able to weed out the bad ideas quickly.

As your experience grows, you’ll get a feel for what discriminates strong candidates, and you’ll find yourself increasingly taking advantage of screening to uncover investment ideas. Screening is a technique for scanning the entire market for stocks meeting your criteria. It’s a powerful tool, but to use it effectively, you have to first understand how to identify the best candidates. That will come with time, and in the meantime, I’ve provided a few sample screens in Chapter 3 to get you started.

Treat all names you get, whether from your own screens, friends, TV gurus, or even Warren Buffett, as tips to analyze using the techniques you are about to learn.